Choosing financial products and services that are right for you
Financial institutions offer many types of products and services. Before you get a new product or service, make sure it meets for your financial needs.
Consider the following:
- how you’ll use it
- the benefits
- the fees and rates that apply, if any
- if it’s right for you
Research and compare the products and services that financial institutions offer. Make sure you understand the terms and conditions. This may help you determine which products or services best meet your needs.
Managing your income and day-to-day transactions
You may need to deposit your income, like your paycheque. You may also need to make purchases on a regular basis. These are day-to-day transactions.
Deposit accounts like chequing and savings accounts are usually best suited to manage your day-to-day transactions.
Deposit accounts allow you to:
- deposit money
- withdraw money
- pay bills
- make other transactions like electronic transfers
A chequing account allows you to manage your day-to-day transactions. It typically has lower transaction fees than a savings account. It may earn less interest than a savings account or no interest.
Chequing accounts usually include the following features:
- a debit card to access your money at an ATM and make purchases in-store and online
- preauthorized debits (PAD)
- Interac e-Transfer®
A savings account typically pays interest on the money you keep in the account. You may not have access to the same services as with a chequing account. You may also pay higher fees for day-to-day transactions.
Many people who open a savings account also have a chequing account for their day-to-day transactions.
A credit card may be an option to pay for your day-to-day transactions. You should only do this if you pay back your balance in full by the due date.
Credit cards allow you to pay for goods and services on credit. Many credit cards allow you to earn rewards or receive other benefits.
You may use a credit card to:
- make purchases in-store, online and by phone
- pay bills
- set up automatic bill payments like your phone or subscriptions
- put a hold on a purchase you want to make, for example, when you go to a hotel
- get a cash advance from a branch or at an ATM, typically at a higher interest rate
Your credit limit is the maximum total amount you may use on your credit card. When you use your credit card to make a purchase, your remaining available credit drops. When you pay it back, that credit becomes available again. This is called revolving credit.
Your financial institution will charge you interest if you don’t pay back your full balance by the due date. You must repay the minimum amount indicated on your credit card statement by the due date.
The interest rate on credit cards is usually much higher than for other types of loans. You can avoid paying interest fees by paying your credit card in full by the due date.
Borrowing money to pay for something specific or to consolidate your debts
You may need to borrow money to pay for something specific like:
- a home renovation
- an appliance, like a fridge or stove
- a car
- post-secondary education
You may also want to borrow money to pay off some or all your other debts. For example, you may use a loan to reduce or pay off your credit card debt. This type of borrowing is called debt consolidation.
A loan allows you to borrow an amount of money that you agree to pay back over time. You must pay back the full amount of the loan, plus interest and any applicable fees. You do this by making regular payments, called instalments until you pay off the full amount.
In addition to your regular payments, financial institutions usually allow you to make extra payments without paying a penalty. This allows you to pay down your loan faster.
You typically get a personal loan for specific purchases or to consolidate other debts. Most personal loans range from $100 to $50,000 with a term between 6 and 60 months. Personal loans are also called long-term financing plans, instalment loans and consumer loans.
Your financial institution may offer car loans. This is a personal loan for the purchase of a car or other type of motor vehicle. Most car dealerships also offer car loans. You may apply for and receive a loan directly at the car dealership.
When you visit a car dealership, they may arrange financing for you with:
- a financing division of the manufacturer
- a financial institution, such as a bank or credit union
- an independent financing company, such as one that specializes in providing car financing
Car dealerships may also offer car lease options. These are typically not available through your financial institution directly.
Student loans can help you pay for post-secondary education.
The Government of Canada offers student loans. With this type of loan, you don’t make payments while you’re a full-time student.
Provincial and territorial governments also offer student loans with similar advantages.
You may be able to apply for a provincial, territorial or federal student loan through your financial institution.
Most financial institutions also offer student lines of credit or personal loans to pay for post-secondary education. With these types of loans, you typically have to make payments even if you’re a full-time student.
Contact your financial institution to learn more about financing options available to students.
Borrowing money to pay for expenses and emergencies
You may need to borrow money to pay for expenses or when an unexpected situation occurs, like an emergency.
Before you do so, compare your options. Some products, like credit cards typically have a higher interest rate than other options. If you can’t pay back your balance in full each month, your costs may be much higher than with other options.
Overdraft protection on your chequing account may be a good option to cover expenses if you use it responsibly. It covers the amount of a transaction when you don’t have enough money in your account.
Remember that interest charges are only part of the cost of using overdraft. Pay-per-use fees can significantly increase your total banking costs.
Personal lines of credit
A personal line of credit may be a good option to pay for expenses if you use it responsibly. It typically has a lower interest rate than a credit card.
It allows you to borrow money up to the credit limit. You don’t have to use the funds for a specific purpose. You may use as little or as much of the line of credit as you need.
You only pay interest on the money you borrow. Most financial institution charge interest on the amount you borrow from the date you start using it. You may pay back the money you owe at any time.
You may have to pay fees with a line of credit. Ask your financial institution about any fees associated with a line of credit.
There are secured lines of credit and unsecured lines of credit. With a secured line of credit, the financial institution will use an asset as collateral. An unsecured line of credit isn’t secured by any of your assets.
Home equity lines of credit (HELOC)
A HELOC is a type of secured credit where you use your home as collateral. It can help you cover expenses, including larger expenses like home renovations. It usually has a lower interest rate than other types of loans or lines of credit.
Your credit limit is determined by the equity in your home and the type of HELOC you select.
Student Lines of credit
You may use a student line of credit to pay for post-secondary education. You may also use a student line of credit to pay for basic expenses, including tuition, books, and housing.
A reverse mortgage allows you to borrow money based on the equity in your home. You may borrow up to 55% of the value of your home. This money can help you pay for your expenses. To qualify, you typically have to be 55 years of age or older. You don’t have to sell your home.
With a reverse mortgage, you accumulate interest costs. The interest is typically higher than with a HELOC or a mortgage.
You don’t need to make any payments on a reverse mortgage until the loan is due.
You pay back your loan and the accumulated interest when:
- you move out of your home
- you sell your home or
- the last borrower dies
Borrowing money to buy a home
When you buy a home, you’ll likely only pay for part of the purchase price. The amount you pay is a down payment. To cover the remaining costs, you typically need to get a loan from a lender.
A loan to help pay for your home is called a mortgage. A mortgage is a legal contract between you and your lender. It specifies the details of your loan, including that it’s secured by a property, like a house or a condo.
Unlike most types of loans, with a mortgage:
- you may have to pass a stress test to determine if you can handle an increase in interest rates
- your loan is typically for a large amount, often several hundred thousand dollars
- you need to make a down payment
- your loan is secured by a property
- you may have a balance owing at the end of your term, as specified in your contract
- you normally need to renew your contract several times until you finish paying your balance in full
- you may need to pay a penalty if you break your contract
Saving for specific purchases and for emergencies
You may want a savings account to help you save for specific purchases, for example:
- a down payment for a home
- a car
- a vacation
You may also use a savings account to save for emergencies.
Examples of emergencies include:
- family illness
- job loss
- urgent home repairs
- natural disasters
You can also consider investing your money in a Tax-Free Savings Account (TFSA) or in another type of investment product.
Tax-Free Savings Accounts
You may use a TFSA for short term and long term savings. Some TFSA may hold a wide range of investment products, and your investments grow tax-free while in the account.
This means that you don’t have to pay tax on investment income you earn inside a TFSA. This includes interest, dividends or capital gains. You also don’t pay tax when you take money out of your TFSA.
Your TFSA contribution room is the total amount that you may contribute to your TFSA. You’ll have to pay a penalty if you contribute more than your TFSA contribution room.
To accumulate TFSA contribution room each year, you must be at least 18 years old and a Canadian resident. Your contribution room increases each year by an amount set by the Government of Canada. This is the case even if you don’t contribute to a TFSA. You may find this amount on your notice of assessment
Saving for post-secondary education
You may use a savings account or a TFSA to save for post-secondary education. You may also consider a Registered Education Savings Plan (RESP) for a child’s education.
Registered Education Savings Plans
A RESP is a savings plan for those who want to save for a beneficiary’s education after high school. For example, a parent may want to save for their child, the beneficiary. A RESP has both a yearly and lifetime contribution limit.
Some advantages of a RESP include:
- your money grows tax-free while in the plan
- the beneficiary may use the money in the RESP to pay for various education costs, not just tuition
- the beneficiary will earn grants from the government to help them grow their savings
Saving for retirement
Many options are available that may help you save for retirement, such as:
- Registered Retirement Savings Plans (RRSP)
- Tax-Free Savings Accounts (TFSA)
- other personal savings and investment products
Investing your money
Financial institutions offer various investment products. You may have investment products in certain accounts and registered plans, like your TFSA or RRSP.
Examples of investment products include:
- Canada Savings Bond (CSB)
- exchange-traded fund (ETF)
- guaranteed Investment Certificate (GIC)
- mutual fund
- segregated fund
- Treasury bill (T-bill)
Insurance may help cover costs if something unexpected happens to you or your:
There are many insurance products that cover different types of situations that you may face.
Other ways to borrow money
You may be able to get a loan by using your assets or your next paycheque as collateral. Your assets may include your car.
These types of loans are a very expensive way to borrow. Your financial institution may be able to help. Contact them to find out what options are available to you.
Car title loans
A car title loan allows you to borrow money if you have poor credit and own a vehicle. You use your car as a promise you’ll pay the money back. You keep and continue to use your car when you get a title loan. If you don’t make your payments, you could lose your car.
Title loans are typically short-term, ranging between 3 months and 3 years. They usually have high interest rates and fees. This makes it an expensive way to borrow money.
Banks and credit unions do not offer title loans. Title loans are available from alternative lenders.
A payday loan is a short term loan with high fees. They are a very expensive way to borrow money. A payday loan is also called a high-cost loan and high-cost credit.
Before you take out a payday loan, consider other options. You may have serious consequences if you don’t make your payments on time. This can include getting stuck in a debt cycle.
With a payday loan, you may borrow up to $1,500, and you may have up to 62 days to pay it back.
Payday loans are different from other traditional loans because:
- you may only take them out for a short period of time, usually weeks
- you usually don’t have to go through a credit check
- you pay a flat fee instead of interest when you pay on time
- they’re only offered by payday lenders
- the lender organizes your loan payments around your payday schedule
You must pay back some or the full amount of the loan when you receive your next paycheque. If you don’t pay it back on time, you’ll face more fees and interest charges. This will increase your debt.
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